A temporary measure to increase the cushion for life capital requirements was advanced by state insurance regulators while a permanent solution is developed, according to a discussion among regulators of the Kansas City, Mo.-based National Association of Insurance Commissioners’ Capital Adequacy “E” Task Force.
The temporary solution, according to regulators, can be revisited if companies’ capital position deteriorates or commercial mortgages show a higher deterioration than experts are predicting.
The change will be implemented for 2010 and 2011. It raises the floor on the mortgage factor from 75% to 80% and the cap from 125 to 175%. The American Council of Life Insurers, Washington, said that it would be amenable to that but not any amount beyond that spread.
By doing so, it would raise the amount of capital by 10 percent. Steve Ostlund, an Alabama regulator raised concern that the commercial mortgage market was a lagging indicator that may drag down capital levels even though the economy seems to be showing signs of improvement. He posed the question of why the RBC charge should not be raised to 4% in 2011.
But both New York regulator Lou Felice and Pennsylvania regulator Steve Johnson said that the industry is being given a chance to get focused on a long-term solution. If that doesn’t happen, then regulators can take more aggressive measures to ensure proper capital levels for commercial mortgages, they said. Johnson also said that the industry had done a good job of demonstrating what is in its portfolio today as well as how this commercial mortgage stress period is different from a severe stress period that occurred in 1990-92.